Yet again, Amazon is back in the news for its tax bill. Presidential candidate Sen. Bernie Sanders this week amplified the claim about Amazon’s tax bill, despite no new tax data actually emerging. The implication is that Amazon is using swampy connections and special carve-outs to get away with murder through the tax code. The reality is far less sexy — Amazon is using common, bipartisan deductions that exist for good reason.
The single most important deduction that Amazon used to reduce its final tax bill is the deduction for net operating loss carryforwards. This deduction exists because business profits can fluctuate wildly from year to year, with huge losses one year and large profits the next.
Without the net operating loss carryforwards deduction, a business would face a large tax bill in its high-profit year, but be left out to dry in its lean year. In other words, without this deduction, businesses that see these kinds of fluctuations would be punished by the tax code, particularly start-ups. The net operating loss carryforwards deduction allows businesses to smooth out their tax bill across the good years and the bad, which is good for them and good for ensuring steady revenue streams.
Amazon also relies heavily on the research and development (R&D) tax credit. An immensely popular bipartisan provision championed by the Obama administration, the R&D credit accounts for the fact that technological advancements benefit society as a whole. The credit exists to encourage businesses to invest in R&D, and the fact that Amazon has utilized the credit so heavily is a sign that the credit is working.
In fact, Amazon is the model of what tax policymakers claim they want to see from a major corporation: a business that invests heavily in its operations and its workers. Those very investments are now contributing to reducing the company’s tax bill. Ironically, Amazon would not be facing this criticism over its taxes if it shifted its investment in R&D to stock buybacks, which the company does not engage in.
There are other tax breaks that Amazon used, but none of them could be characterized as obscure or “carve-outs.” The most significant of these is the deduction for stock-based compensation — a deduction which could certainly be criticized, but is nonetheless a commonly used deduction introduced by President Clinton and congressional Democrats in the ‘90s.
In fact, the source of the zero-tax claim shows how silly looking at just one year of taxes is in the first place. The “Amazon paid zero taxes in 2018” claim comes from a report by the Institute on Taxation and Economic Policy, a left-leaning think tank. But that same report’s methodology returns a result that Amazon paid a nearly 92 percent effective tax rate in 2014 — which is high.
Part of the reason why Amazon’s taxes keep popping back into the news is to imply the 2017 tax reform law is helping big corporations avoid taxes. That’s not the case though. All of these deductions existed before the Tax Cuts and Jobs Act (TCJA) was passed, and were not changed by the law.
Tax bills for big corporations make for a popular news hook, but they often misunderstand the issue at hand. Amazon’s not avoiding taxes through some nefarious means, it is taking advantage of tax deductions that are bipartisan, popular, and in the tax code for good reason.
Andrew Wilford (@PolicyWilford) is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to fiscal policy analysis and education at all levels of government.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.